The Impact of the 2015 and 2016 Power Outages on Zambia’s Manufacturing

Abstract

The most frequent costs of power outages are extra staff payments, damage to equipment and damage to reputation. Firms that use generators evidently experience a marginal cost of greater than USD 0.25/kWh of grid-energy loss. The most popular interventions to mitigating damages are the use of surge protectors, voltage regulators and capacitors, delaying production and using diesel generators. Following the frequent and severe power outages of 2015 and 2016, most Zambian manufacturing firms purchased generators for the first time. The use of diesel generators is associated with reduced delay in meeting customer orders. Delays are associated with a loss in clients. Predictors of the installed capacity of generators are different from predictors of the extent to which they are used. Whereas firm size in employees predicts generator capacity, subsector and perhaps other factors such as whether a firm exports or is foreign-owned predict the extent of self-reported use. The data suggest that basic metals firms purchase generator capacity but might not have the working capital required to run them to the extent that they would like. ZESCO’s several tariff hikes in 2017 had no apparent effect on electricity consumption by firms, the largest consumers of which were paying the lowest tariffs. Low, system-unsustainable tariffs may in fact be more uneconomical for firms if they result in greater power losses. The (minimal) difference between peak and off-peak tariffs seemed not to be having an effect on consumption. A quarter of firms did not receive reliable or any communication from ZESCO, resulting in distrust and unwillingness to commit to paying higher tariffs for apparently more reliable electricity.